Thursday, April 19, 2007
Chinese growth heating up economy
China's economy has grown by an annual rate of 11.1% in the first three months of 2007, official figures show, fanning fears it is starting to overheat. Separate figures showed annual inflation rose to 3.3% in March. China's main share index closed 4.5% lower amid concerns interest rates will have to rise to slow inflation because earlier measures have largely failed. "Investors are worried the government may take serious steps to rein in the economy, such as an interest hike plus some administrative measures," said Xu Yinhui, a fund manager at Guotai Junan Securities.
China's economy has grown by an annual rate of 11.1% in the first three months of 2007, official figures show, fanning fears it is starting to overheat. Separate figures showed annual inflation rose to 3.3% in March. China's main share index closed 4.5% lower amid concerns interest rates will have to rise to slow inflation because earlier measures have largely failed. "Investors are worried the government may take serious steps to rein in the economy, such as an interest hike plus some administrative measures," said Xu Yinhui, a fund manager at Guotai Junan Securities.
Read the full story at: http://news.bbc.co.uk/2/hi/business/6570713.stm
The rapid growth of the Chinese economy in the past decade (China has grown by more than 10% in each of the past four years), has taken place on the back of high government spending, rising exports and increased foreign investment. All of these injections to the Chinese economy are stimulating growth by shifting the AD curve to the right. Nevertheless, this accelerating growth of GDP has raised concerns that the economy may now be ‘overheating’, in the sense that excess capacity has been used up, subsequently putting upward pressure on prices. The rising investment rate, though, should be contributing towards raising the Chinese economy’s long-run (steady-state) capital stock and output level.
The much acclaimed new interactive learning package LiveEcon can help you undertand the economics behind these important policy events. For example, Chapters 4 and 14 (at principles and intermediate level, repectively) explain how do injections in the open economy affect the aggregate level of demand, while Chapter 15 uses the AD-AS framework to explain how may overheating occur depending on the slope of the AS curve. Furthermore, Chapters 8 and 17 (also at principles and intermediate level) illustrate the long-term consequences of changes in the investment rate for the growth rate of the economy, using the well-known Solow growth model. Find out how to get LiveEcon at http://www.liveecon.com/. Download this blog as a Blogcast via the website.
# posted by Kostas @ 17:59 
